So now we cover utilities for both units and the new tenant pays a higher amount too on the back unit to cover all the utilities with a great profit.  

There’s no reason for an owner to pay for utilities they aren’t using.

Pay to separately meter the utility.

Quote from @Jaycee Greene: A few things I noticed, in addition to having the tenant pay the utilities are:1) Incorporate annual increases in rent higher than 2% (in your area, maybe 4%-5%) with a slightly smaller increase in operating expenses (say 2%-3%)2) With a gut rehab, I'm not sure why you need to spend $128/month on cap ex, at least for the first year or 2.3a) An 80% cash out refi is probably going to be hard to get.

There are multiple ways to ensure the tenants cover utility costs when using shared meters. 

The reality is that the Gross S8 Rent amount on an S8 voucher includes all utilities.

Selling a primary residence and then buying it back as part of a 1031 exchange could raise red flags with the IRS.Your parents have a valuable opportunity to defer a significant amount of taxes by utilizing the $500,000 exclusion on their primary residence.

Assets identified in this study include:Recreational Facilities: pool and pool deckSite Utilities and Infrastructure: Utility connections, signage and site lightingLand Improvements: Sidewalks, landscaping, fences, parking spaces62.28% of the total depreciable basis was classified as 27.5-year class life.

So losses from that specific rental may be utilized. 

You would basically offer the same set up utilities but you would have a residual income monthly by renting the plot to the owners of the space.